Fears raised that giant Italy could be next for bailout after borrowing costs soar

Borrowing costs in Italy soared yesterday as prime minister Mario Monti admitted he was ‘worried by the situation of emergency’ engulfing the eurozone.

Rome managed to sell €6.5billion (£5.25billion) of one-year bonds to investors – but the yield jumped to a punishing 3.97 per cent from 2.34 per cent at a similar auction last month.

The surge in interest rates came as investors worried that Italy will be the next eurozone country after Spain to seek a bailout to save the country from collapse.

Europe's Lehman moment? The Organisation for Economic Cooperation and Development has lambasted Europe's leaders for failing to get to grips with the crisis

The £80billion lifeline for Spanish
banks agreed at the weekend has done little to allay fears that the
region is heading for financial catastrophe.

A poll by Reuters showed that 35 out
of 59 analysts across Europe and the US expect Spain to require a
full-blown state bailout within the next 12 months. The poll also showed
22 out of 59 do not expect the single currency to survive in its
current form.

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Greece, Ireland and Portugal have already received international bailouts in a bid to stop the break-up of the euro.

Monti, an unelected technocrat who
replaced disgraced Silvio Berlusconi in November, insisted his unpopular
economic medicine was essential to stop Italy becoming the next victim
of the crisis.

‘We should use these new difficulties
to double our efforts both on the European front and within Italian
politics,’ he told parliament in Rome.

Spanish PM Mariano Rajoy said Europe
faced a ‘battle’ to save the single currency. ‘Europe is undergoing the
gravest crisis since its creation,’ he said. ‘The euro is at risk.’

Greek elections on Sunday could see
Athens head for the exit if angry voters back left-wing parties opposed
to the latest bailout deal, which imposed some of the toughest austerity
measures seen in Europe for decades. Greeks are pulling their cash out
of banks and stocking up with food ahead of the vote – which polls show
is on a knife-edge.

The Organisation for Economic
Cooperation and Development lambasted European leaders for failing to
get to grips with the crisis.

Pier Carlo Padoan, the watchdog’s
chief economist, said: ‘The current situation reflects the fact that it
is not clear to markets what political leaders and policy makers want to
do. It is therefore urgent to break this vicious cycle.’

It came as figures showed output from eurozone factories tumbled 0.8 per cent in April as the economic malaise deepened.